This paper aims to model and predict the behavior of commodity prices using the exchange rates of commodity-exporting countries. Understanding commodity price dynamics is important for a proper control of inflation and planning of production. Our results point to a causality relation between the exchange rate and commodity prices for all countries under study except South Africa and Argentina. For Australia, Brazil, Canada, Chile, Colombia and New Zealand the exchange rate is an important piece of information to forecast commodity prices in-sample. For Australia and Canada, this relation is also significant out-of-sample. Our results confirm those of Chen, Rogoff and Rossi (2010) and extend that work to the cases of Argentina, Brazil, and Colombia.
commodities; exchange rate; Granger causality test; forecasting model
